That's still not the issue. Imagine you're a beginner-level programmer and you know another guy who is at the same skill level as you, and you both join CodeWars at the same time, you're in the same clan, etc. You work really hard for a week, but he finds a cheat solution that works on many kata. At the end of the week, you check your progress and you're at 6 kyu, but he's at 2 kyu! At this rate, you won't get to 2 kyu for another month or two!

It may be hard for a high-level programmer to understand, but if you were that beginner-level programmer, you'd feel pretty darn stupid. (I know this because one of my friends is just getting into programming and he expresses that he feels dumb all the time.)

may be discouraged

I don't agree, quite some people in the clan Gensokyo including me is inside the same group too and we still talk about CW stuff quite often :P

I know there are people who can get to 2 kyu in a week. I'm 3 kyu after 4 days. (Edit 2 kyu after 5 days)

The issue is that Nate may be discouraged if Carl is rising very quickly but Nate isn't, especially if they know each other in real life (very likely if they're in the same clan) and Nate knows he's about as good as Carl.

What makes you think cheaters are not detected and dealt with? :P

Also, there are actually people who can get to 2kyu within a week legitimately.

At the same time, because one's progress is displayed, cheaters make non-cheaters less able to estimate their comparative skill levels.

In other words, if Cheater Carl and Non-cheater Nate are comparing their progresses, and Carl has 2 kyu after a week, but Nate has 5 kyu after a month, Nate could easily be discouraged. In addition, if Nate wants to compare his skills to Carl's non-cheating skills, they have no way of doing so.